Since March of this year there has been talk of the Obama Administration launching a new program that would offer some relief to homeowners that have found themselves in a mortgage that is larger than their home is actually worth. This type of imbalanced loan is also known as an “underwater mortgage”.
There has been no shortage of criticism when it comes to the last federal program that the government initiated. When HAMP (Home Affordable Modification Program) was launched its intention was to provide relief through loan modification to an estimated 3 million struggling Americans. The fact is that the program never realized its projected potential. Only an estimated 1.3 million homeowners entered the program, and half of those that entered were deigned or defaulted on their modified payments.
This new program is intended to strike at a different angle. The programs intention is to offer banks and lending institutions a carrot if they are willing to write down these types of mortgages. The government has agreed to accept these reduced mortgages; essentially taking them off the banks hands. Currently there are an estimated 11 million homeowners who are faced with a mortgage that is valued higher than their properties are worth and there is no immediate relief in sight. Property values are not rebounding fast enough to make it viable for a homeowner to hold out for better times. Critics estimate that 1 in 5 homeowners who enter the new program will fall into default anyway.
There is a heated debate being held in Washington about not only the success of this type of program but there are concerns being raised about the legality of the write downs. In many cases these mortgages have been bundled by banks on Wall Street and sold off to investors. There are no solid figures on what a massive write down like this would cost investors. The government has stated that they have plans to re-allocate $14 billion that was set aside for the Troubled Asset Relief Fund to offset any cost to tax payers.
The problems in housing market have proven to be multifaceted. There seems to be no singular fix that is going to solve all of the problems. The current administration has taken plenty of criticism for its domestic housing issues, but the willingness to continually refocus its efforts of finding a solution should be commended.
Bryan is a member of New Homes Section and a proud contributor to its blogging network. 
I wonder what value they’d be writing down too, 100% of market value? Who would decide who is allowed to take part and who isn’t?
If it has any thing like the success rate of the loan mod programs, it will be a waste of time.
This program must resolve a stubborn problem that has hindered every some other modification program: just how to deal with 2nd home loans. This program claims 2nd liens needs to be lowered so that the entire home loan debt is below 115% of the home’s present-day value.
Analysts say that this program is most likely to succeed on mortgages that banks already own in their portfolios. It can also provide investors with a vehicle for getting rid of mortgages which have recently been modified and are current again.